Altman Z-Screen flags PSU banks and LIC distress

A solvency model built for steel mills and auto plants just pushed eight Indian financial giants into the distress zone. FairStock's Altman Z-Screen flags any score below 1.8, and it caught [Life Insurance Corporation](/stock/LICI) (NSE: LICI) and seven public-sector lenders. That's not a default call. It's a screening flag. But it raises a question most investors haven't asked: how useful is a 1968 manufacturing formula for a bank? The affected list reads like a roll call of state-owned finance. [Central Bank of India](/stock/CENTRALBK) (NSE: CENTRALBK) appears first. [Canara Bank](/stock/CANBK) (NSE: CANBK) and [Bank of Baroda](/stock/BANKBARODA) (NSE: BANKBARODA) follow. So do [Punjab National Bank](/stock/PNB) (NSE: PNB), [Bank of India](/stock/BANKINDIA) (NSE: BANKINDIA), [UCO Bank](/stock/UCOBANK) (NSE: UCOBANK) and [Union Bank of India](/stock/UNIONBANK) (NSE: UNIONBANK). Their debt-to-equity ratios sit between 10.4 and 14.7. LIC is the exception: zero D/E, yet a negative Z-score. That contradiction is the story. Why the Altman Z-Screen is harsh on banks and insurers Edward Altman designed the Z-score in 1968. The original model was built for manufacturers. It blends working capital with retained earnings. It then adds EBIT and compares the market value of equity with total liabilities. A factory with heavy liabilities and weak retained earnings produces a low score. A bank with heavy deposits produces the same result, even when its capital position is normal. Consider [Canara Bank](/stock/CANBK). Deposits are liabilities on a bank's balance sheet. A debt-to-equity ratio above 10 is not a solvency problem by itself. It's how banking works. The Z-score doesn't care about that distinction. It sees borrowed capital and marks it down. The same applies to [Bank of Baroda](/stock/BANKBARODA) and [Punjab National Bank](/stock/PNB). LIC's negative Z-score is even more revealing. An insurer holds policyholder funds as liabilities. Those obligations dwarf shareho...